Every business deals with unpaid receivables, whether it’s an overdue invoice or a payment that’s reversed after being charged. Assigning an internal resource to make phone calls often makes a difference, but once late receivables grow beyond a few thousand dollars, businesses need to approach Accounts Receivable Management more professionally.
The idea of using an external agency to help with receivables raise concerns, and it should. You are effectively giving your customers to a third party. Often this means losing these customers. If you don’t choose wisely, you’ll end up with an aggressive agency who’ll alienate your customers, hurt your brand and might even get you in legal troubles. In addition, many collection agencies won’t service small portfolios or ones with small average debt amounts. The few that do will manage that portfolio with minimal care.
Why consider using a collection agency?
- Set up costs for an internal operation are one reason. Hiring and training customer care reps to collect overdue payments is a significant investment. It takes many months until the operation works well and is able to start recovering meaningful amounts. On top of that, there are compliance costs – the FDCPA for collection practices, TCPA for phone practices, CAN-SPAM for emails and so on.
- Receivable management in general and collections specifically require a completely different expertise than simply making your customers happy. Human psychology, negotiation skills and extensive use of technology to enable frictionless processing all need to come into play so you’ll be able to recover enough lost revenue. Often this is just outside of your main focus area – making customers happy and improving your product.
- Collection agencies also have tools that you don’t have. Whether it’s a strong work flow manager to follow up on promises to pay, a power dialer to allow efficient dialing, or the ability to report a debt to credit bureaus – these tools take time and money to set up and tweak to perfection.
- Finally, properly using a third party can actually increase retention and improve brand perception. If your collections partner knows how to support your brand and listen to consumer complaints, they can flesh out reasons for default that aren’t shared with your staff. Add the ability to negotiate payments on outstanding amounts and the collections partner almost turns into your customer retention department, while recovering lost revenue.
Do you need a collection agency?
Using a collection agency makes sense once you have more outstanding invoices than you can casually handle. Instead of hiring a full time person, look into using a vendor that can help you get paid without losing your customers.